EU Manufacturers Gain From Lower Euro; Greece Slipping into Recession

Published at20:19, Apr 01 2015

LONDON — Enjoying the bonus offered by the much lower euro, manufacturers across much of the 19-country eurozone are hiring again. Greece’s manufacturers though don’t appear to be enjoying the fruits offered by a lower currency amid worries over the country’s economic future.

In a closely monitored survey, financial information company Markit said Wednesday the region’s manufacturers raised employment levels in March at the fastest rate for over three-and-a-half years.

The reason appears clear enough — the sharp fall in the value of the euro currency over the past few months has made exports emanating from the region much more competitive. That’s evident in Markit’s survey, which found incoming new business at its highest level since last April.

As a result, Markit’s purchasing managers’ index — a broad gauge of business activity — for the eurozone’s manufacturing sector rose to 52.2 in March from 51.0 the previous month. Anything above 50 indicates expansion.

The so-called PMI now stands at a 10-month high, the latest in a string of indicators to point to a step-change in the eurozone’s economic recovery.

Markit found growth accelerated across the eurozone, not just Germany, where car makers such as Daimler are already benefiting. Spain and Italy, two countries at the forefront of the region’s debt crisis over the past few years, were highlighted.

“Producers are benefiting from the weaker euro, which has had the dual effect of boosting competitiveness in export markets as well as making competing imports more expensive in the home markets,” said Chris Williamson, Markit’s chief economist.

“The fact that manufacturers are boosting their payroll numbers at the fastest rate for three-and-a-half years indicates optimism that the upturn will be sustained in coming months,” he added.

In recent months, the euro has notched up one milestone after another as it dropped against major currencies. Last month, it hit a 12-year low against the dollar around the $1.05 mark. It’s now trading a little higher than that at $1.0750.

The fall in Europe’s single currency has been dramatic — as recently as May, it was trading just shy of $1.40 and many firms across Europe openly fretted about the impact on their exports.

One country seemingly not benefiting from the falling euro has been Greece, whose economy has been hobbled by the ongoing uncertainty surrounding the country’s bailout.

Discussions between the new Greek government and the country’s creditors over an economic reform plan have dragged. An agreement between the two is needed if Greece is going to get its hands on the next batch of bailout cash — more than 7 billion euros — that it needs to avoid going bankrupt and potentially exiting the euro. And even if an agreement is reached, Greece will still most likely need financial assistance beyond the summer.

That uncertainty has unsurprisingly prompted a cautious approach among those looking to do business with Greek firms. Markit found the Greek manufacturing sector contracting for the third month running in March mainly linked to a further reduction in incoming new work in the sector, in particular from abroad.

“One major concern is the trend in exports, which up until fairly recently had been acting as a support to the sector but are now an area of weakness as uncertainty deters foreign clients,” said Phil Smith, an economist at Markit.

As a result, he said manufacturers are scaling back production, meaning the sector is dragging down the wider economic recovery, which took root last year after a brutal six-year recession saw Greek economic output shrink by a quarter and unemployment and poverty levels swell alarmingly.

Many economists expect Greece to be officially back in recession when first quarter numbers are published next month.